INDUSTRY
BULLETIN: Rare Earth Magnets now Playing an Important Role in Wind Energy
Production

In our ongoing efforts to provide you with broader communications
and industry information, we are pleased to issue this Industry Bulletin to
provide several highlights from the Magnetics 2008 Conference, held
in Denver, Colorado, May 15-16, and attended by Avalon's VP, Corporate
Development, Ian London. Of particular interest to our readers is the
reported steady increase in demand for rare earth permanent magnets for an
ever-growing list of applications, especially their emerging role in
renewable energy production. You already know about the growing use of rare
metals such as indium and gallium in new solar energy technology, and now
we learn that rare earth magnets using are key to improving energy
generation from wind turbines and the development of larger, more efficient
wind farms.

The power generated by a wind turbine is directly proportional to the sweep
area of the blades and the cube of wind-speed. Accordingly, to generate
more electricity, wind turbines are getting larger with blade spans
increasing to 124 metres (2007) for some 5 MW units, and standing some 114
metres tall.

Innovative new designs now call for permanent magnet, direct drive turbines
connected to permanent magnet generators (eliminating the need for gear
boxes), all accomplished with the application of Neodymium-Iron-Boron rare
earth magnets known as "Neo magnets". These new designs increase
the mechanical efficiency and reliability of these units, reduce the energy
losses in the machines' internal operations and reduce the risk of failures
and servicing requirements. Some newer wind turbine-generators require
2000 kilograms of Neo magnets per unit.

Overall, demand for permanent magnets is predicted to grow at an average
annual rate of at least 4 � 6%. Walt Benecki, a respected consultant to the
magnet industry, predicted that "by 2020, the total market for
permanent magnets will grow to over US$20 billion as compared to last
year's (2007) US$9 billion. More directly relevant to Avalon are
projections for Neo magnet demand to rise from 63,000 tons (2007) to
120,000 tons (2020), a 90 % increase that could rise with new applications
(such as wind turbines) creating additional demand. On a dollar basis,
factoring in the increase in commodity prices, sales of Neo magnets are
projected by Benecki to increase by 172% from approximately $5.25 billion
to $14.25 billion over the same period.

While China currently supplies over 95% of the world's REE needs, it is
generally recognized that China's cost and raw material availability
advantage will begin to erode due to wage and material price inflation,
electricity supply issues, pollution, local export restrictions and
exchange rates. Benecki projected that "Chinese domination of world
REE production will drop to approx. 75% from its current 95% level, with
North American and Australian production representing 25%". Another
speaker noted that "even with new North American and Australian
production, REE demand will continue to outpace supply" from which one
can infer that prices for REE continue to be strong.

There was also much discussion around the strategic aspects of rare earths
and magnet production, prompted by the National Academy of Science
statement that "the predominance of U.S. importation of rare earths
from a single country coupled with China's own growing demand for minerals,
represents potential for restrictions regarding future U.S. access to rare
earths at any price."

Rapidly rising fuel costs are stimulating a huge surge in demand for
renewable energy alternatives including both wind and solar. Avalon is well
positioned to benefit from the new demand for rare metals for both of these
emerging applications, through its large rare metals resources at Thor
Lake, Northwest Territories. The Lake Zone deposit, which is currently
being drilled, contains exceptional enrichment in neodymium and other REEs
needed for permanent magnets. It also contains high levels of gallium and
other rare metals such as tantalum, niobium and zirconium needed for many
other emerging high-tech applications. Gallium and niobium have both been
used in certain Neo magnet formulations.